Are you looking to buy stocks for their dividends but also passive income growth? Today we’re going to take a quick look at three names that could help investors grow their passive income over the years.
A neglected dividend growth stock
Dividend growth can come from unlikely places. Of course, some of the best dividend rates on the TSX hide payout ratios that suggest room for income growth. But delving into growth stocks can also reveal some intriguing choices. Watch Cargojet (TSX: CJT), for example. It’s a name that could generate big returns for investors by the mid-1920s – potentially up to + 790%, in fact, according to estimates.
Aviation investors may still be neglecting Cargojet in favor of Air Canada over the past few months, however. Why? On the one hand, the commercial airline carrying the flag is relatively cheap. Of course, that doesn’t necessarily mean it’s the best-valued stock on the TSX. However, there are cheap stocks … and then there are cheap stocks quality stocks. And Air Canada is firmly in the second category.
For regular passive income payments, Cargojet is the stock to be purchased. Some of its strong five-year returns will come from paying dividends. And those payments could eventually increase over time. So, for long-term investors, Cargojet might be worth a second look. This name offers a dividend yield of 0.43% with a projected coverage ratio of just 17% in three years.
There is an ETF for that …
FNB iShares Core Dividend Growth is built around stocks chosen for their potential to increase payouts. There are a lot of good companies in this fund. Of Apple at Pfizer, not much here will be unfamiliar to the Canadian investor in general. It is primarily weighted by the names of healthcare, technology, and financial services. The ETF itself pays a dividend yield of 2.3% and trades with near-market weight volatility.
Of course, investors may want to unbox this and other ETFs and choose what they prefer about them. For example, an investor may have doubts about Big Pharma’s approach as the New Year approaches. The same goes for Big Tech, which is starting to be frowned upon by value-driven shareholders. For the casual investor with less spare time, however, this is a good place to start with growing US dividends.
Tech stocks can also hide the security of dividends. Digging into the normally high-growth area reveals Open text as a potential purchase. Flying under the radar with a 1.8% yield, Open Text is another dividend growing name. The company’s payout ratio is expected to drop from 72% to 29% over the next three years. This means that not only is this distribution fairly well covered, but the growth in payments could be in the cards.
In summary, buying long-term dividend-paying stocks doesn’t need to find the richest returns. By looking at dividend coverage alongside a company’s history, investors can reduce distribution growth. From ETFs that follow these companies to overlooked infrastructure and technologies, there are solid options for increasing returns.
Crazy contributor Victoria Hetherington has no position in any of the stocks mentioned. David Gardner owns shares of Apple. The Motley Fool owns shares and recommends Apple and CARGOJET INC. The Motley Fool recommends Open Text and OPEN TEXT CORP.